Finding Cost Savings: It's the Whole Package

Looking at packaging and freight costs together boxes up logistics and transportation efficiencies.

Some packaging solutions that prevent product damage while cutting costs and boosting efficiencies can be counter-intuitive.

Take the electronics manufacturing company that approached John Clarke, technical director for The Nelson Company, a Baltimore, Md.-based pallet provider, to fine-tune its shipping process.

"The company was experiencing product damage, but also wanted to minimize costs," Clarke says. The manufacturer already had a relatively low two-percent damage rate, but its products' high value spurred the search for a reduction.

Clarke worked with the manufacturer to reduce the size of, and add strength to, its pallets and boxes. Although the new packaging cost more to produce, the smaller footprint reduced less-than-truckload shipping costs—the company's most frequently used mode—by about five times. And damage rates dropped to around 0.1 percent.

"Looking at freight and packaging costs together provides an excellent opportunity for overall savings," Clarke says.

When selecting packaging for products in transit, cost savings represent just one of many factors manufacturers must consider. Over the past few years, companies have expanded their views on purchasing packaging materials. More manufacturers are considering the entire span of the supply chain—from increasingly automated manufacturing floors to return logistics.

Meanwhile, heightened consumer sensitivity about sustainability, and the growth of online retailing, has required manufacturers to present a more polished appearance. Throughout the process, technology and new opportunities to strengthen a company's brand through packaging are also influencing decisions.

Combined, these changes have led more companies to consider cost-per-use rather than cost of acquisition when purchasing packaging.

Although a lower cost-per-use often translates into higher upfront costs, companies are increasingly willing to make that larger initial investment. The emergence of returnable packaging and closed supply chains, for example, allows companies to spread acquisition costs over multiple uses.

"The supply chain doesn't always consist of moving goods from a distribution center to a store, or from one customer to the next—it goes in both directions," notes Dan Lafond, supply chain solutions sales manager for Los Angeles-based packaging manufacturer Rehrig.

With goods moving more quickly and more often, "any wasted money is wasted over and over again," Lafond says. "But many companies are evolving toward making sufficient long-term decisions earlier in the process. That often involves deciding to pay the upfront startup cost, knowing it will pay dividends on the back end."

Reusable packaging opens the door to opportunities beyond reduced costs—such as improved product safety and branding—that aren't available with one-way packaging. These more expensive reusable materials, however, make it critical to track the packaging and avoid losing the asset.

"That information can be relayed to whoever is responsible for shipping the saleable product," Lafond says. If the data showed the eggs were exposed to unsafe temperatures at some point during shipping, the grocer or retailer could take action to reduce losses.

Returnable packaging also offers branding opportunities. Plastic crates can be manufactured in a company's colors, and incorporate its logo. In-store, branded crates may help a company stand out from competitors. Consumers spend 46 percent more time looking at branded, reusable crates than non-branded merchandise, which can influence purchasing decisions, according to a study conducted by Rehrig and Clemson University.

Promotional displays comprised of secondary packaging also give manufacturers a way to covertly track their investment. Consider a plastic tray holding beverages.

"That tray can be used to interact with customers," says Lafond. "They can access product information by tapping on this secondary tray with their smartphone, just like they would a sign in a store.

"We're also working on technology that would pinpoint the location of that asset," he adds.

As reusable packaging materials become increasingly common, so, too, have plastic trays and pallets. Although plastic pallets tend to cost more initially, they last longer and offer hygienic benefits to industries such as food. Plastic pallets also tend to work better with forklifts and other equipment, which reduces the risk of damage, and supports the lower cost-per-use by extending the pallets' lifespan.

Continued advances in returnable packaging have increased opportunities for companies to customize it, helping to maximize cube. "Companies might be adverse to spending $1 million on something, not realizing they're spending $2 million by doing nothing," Lafond says.

Packaging's Impact

From an environmental perspective, returnable packaging promotes sustainability by reducing the amount of product dumped in landfills, while also decreasing the amount of raw materials needed to create the packaging. Companies considering incorporating other sustainable packaging solutions into their lineups, however, should think ahead about the impacts of those decisions.

For example, the fibers of recycled materials are shorter, which can reduce box strength, and even affect how well packing tape works. One option for circumventing the issue is using tape specifically designed for recycled content.

Many new sustainable solutions are also hitting the market. Products such as a mushroom-based foam may cost more, but could parlay into a marketing opportunity for companies whose ethos includes environmentalism, Horvath says.

For example, for its heavier products, computer manufacturer Dell uses mushroom-based packaging, which looks and functions like Styrofoam. In 2009, the company started using bamboo to package lighter products, such as laptops and smartphones; however, the bamboo didn't work for heavier products, such as servers.

Companies also need to consider the costs associated with shipping the packaging materials themselves. For example, shipping rolls of film that will be inflated on-site takes up less space than shipping ready-to-use packaging materials.

Conversely, using sustainable materials sometimes increases shipping costs, says Matt Thompson, packaging and technical services director for Sealed Air, an Elmwood Park, N.J.-based packaging supplier. Sustainable materials can weigh more, leading to higher freight costs. Or a company may have to use more packaging to achieve the same protection that a non-sustainable product provides, potentially increasing costs and offsetting any sustainability benefits.

"Reduce, reuse, recycle. That mantra has been around for years, but it's still important," Thompson says. Using fewer packaging materials ranks high among the crucial steps companies can take to reduce their carbon footprint. But using a thoroughly tested product is key when reducing the amount of packaging. Knowing a material's limitations is important for preventing product damage.

"We know how to design a package for best protection," Thompson says. "We also know how far we can reduce the amount of packaging without sacrificing product protection."

Identifying a target damage rate is important for companies creating or re-tooling their protective packaging strategy. Some expensive goods, such as electronics, demand a very low damage rate, but manufacturers in other industries find it makes more business sense to lose product than to invest in enhanced protection.

"Manufacturers don't often admit that," Thompson says. "But sometimes handling or storage requirements are so extreme that it's not worth the cost and effort to invest in packaging to eliminate every possible damage situation."

Packaging design must include forecasts of how a customer will open a box, particularly in e-commerce. "A lot of damage can occur when a user unpacks the product," Thompson says. Where in the supply chain the damage is happening impacts the packaging changes a company can make to protect the product.

How end users perceive consumer-based companies has also gained importance as manufacturers seek to build brand awareness and loyalty. In the past, a retailer might have shipped from multiple distribution centers, with even identical items arriving in different packaging.

"Packaging might all look different, without the pristine brand image that the company wants to display," Davidson says.

To enhance their image, and ensure a consistent customer experience, retailers selling online are increasingly looking to packaging to make a positive first impression and keep customers coming back.

Despite increased awareness of aesthetics and sustainability, most companies continue to prioritize shipping products at the lowest possible cost. "Economy still rules the day," Thompson says. Companies must strike that careful balance between affordability and product protection.

Hitting the Bottle

One industry that often experiences product damage is bottle manufacturing. For one bottling manufacturer, Horvath's team at Virginia Tech analyzed the interaction between corrugated boxes and pallets, which significantly influences product protection. The research revealed how dramatically weight distribution can vary for bottles on a pallet, depending on their placement. Bottles sitting on top of the stringer experienced 10 to 30 times more compression stress than those in the middle of the pallet, where bottles weighed down the deckboard, making it bend.

The issue can cause leaking bottles and lost revenue. One solution is to involve corrugated designers to complete testing and confirm the boxes work with the pallets to ensure even weight distribution. Investing in stronger, correctly sized pallets also contributes to reducing overall packaging costs.

The types of materials used to protect goods can also make a big difference. Several years ago, Melrose Park, Ill.-based pinball machine manufacturer Stern Pinball was experiencing issues with corrugated boxes scuffing the pinball machines because of vibrations during transit. The company needed to retain the same box size, which limited potential solutions.

Ultimately, Stern switched to a foam product from Sealed Air that protected only the corners of the box, which saved space and mitigated expense. To try out the new method, two pinball machines—one with the old package design and one with the new—underwent a vibration test. Stern also test-shipped several machines with the new foam protection before fully implementing the new packaging.

"It was important for Stern to keep costs down, so using small cushions on all corners of the machine was the best option," says Kevin Dabrowski, design manager, Sealed Air. "It offered the most protection using the least amount of material."

Companies can partner with universities to test solutions before implementing them, Horvath suggests. "It's a good alternative for companies that don't have enough capital to start an extensive packaging investigation," he says. "We teach companies how to reevaluate current processes, and find less-expensive solutions."

When making changes to packaging, one mistake manufacturers sometimes make is buying a specific item without understanding its impact on adjacent parts. "Some examples include buying a pallet without understanding how it supports the packaged product; specing a larger pallet without understanding the impact on freight; or installing a warehouse rack system without involving the packaging and pallet team," Clarke says.

Companies often neglect to consider other important ramifications, such as the capabilities of their workers, or equipment footprint on the manufacturing floor.

For example, switching to a product that comes in heavy rolls or bulky bundles could have unanticipated effects on the workforce. "Companies have to consider labor, the health and safety of employees, and how they handle the product," Davidson says.

Los Angeles-based lighting manufacturer Justice Design Group changed its packaging to reduce product damage, but in the process, found a solution easier for employees to handle. "Our products are highly customizable, which means we can't replace them if they break in transit; we have to manufacture them again," says Brandon Levin, president of Justice Design Group.

The company switched from an interlocking corrugate solution to a biodegradable loose fill. The interlocking solution had sharp edges that required employees handling it to wear gloves. The fill didn't have those edges. It also weighed less, and easily supported the lighting fixtures' many curves and pressure points.

Before it changed the solution, the company conducted drop tests, then started using the new product on a small scale for a few months before fully switching over. Justice Design's packaging operations already had the equipment necessary for loose fill, making the transition an easy one.

Equipment needs should also factor into a company's decisions about packaging. Products such as foam packing require a machine, and thinking about its placement, and how it fits into a manufacturing floor's existing footprint, is crucial for making a wise investment.

"Evaluate the application and equipment needs, and labor and productivity requirements," suggests Davidson. "Only then can you make the best final decision."

The number of choices has also made that process more complex, heightening the need to consider the entire supply chain when making packaging decisions. Companies must evaluate all the environments a product will pass through, the elements it will be exposed to, and the length of time it will sit in storage. All those factors influence which packaging materials will work best.

Petersen has worked with several companies that traded down to less expensive, less durable packaging supplies to save money, but ultimately reversed their decisions. As the economy improves, he expects more companies to invest in sturdier materials to save money in the long term.

"Companies need to constantly push the envelope when it comes to packaging strategies," Petersen says.